Inflation, per this morning’s CPI print, is running hotter than economists predicted, but certainly not hotter than you and I are feeling. But, hey, maybe not… I mean J. Powell did say inflation is concentrated in just a few select areas.

So, if we ex-out, umm, well, like everything, we’re good. 

Economist Peter Boockvar’s note this morning happened to be titled If You Ex Out Most Everything, Inflation is Low. 

Here’s the closing paragraph:  emphasis mine…

“Bottom line, as stated the biggest component (their housing metrics “owner’s equivalent rent and rent of primary residence”) of CPI (about 30%) and the core (about 40%) is still not even close to being accurately reflected in this data and even before it does we are seeing 5.4% headline CPI gain and 4% core. No more base effects here I’m afraid. And, the recent jump in energy prices is only going to start filter into so many other things. If one doesn’t eat, drink, drive, buy a car, buy a home, rent a home, furnish a home, buy clothes, send kids to school, send a package in the mail, own a pet, to name a few, you might not have much inflation in your cost of living”.

Believe it or not, even some at the Fed are starting to come around to our way of thinking. Here’s from Atlanta Fed Governor Rafael Bostic in a speech yesterday at the Peterson Institute:

“…it is becoming increasingly clear that the feature of this episode that has animated price pressures—mainly the intense and widespread supply chain disruptions—will not be brief. Data from multiple sources point to these lasting longer than most initially thought. By this definition, then, the forces are not transitory.”

Well not so fast, previous to my cherry-picked quote above, he did say the following:

“I think “episodic” better describes these pandemic-induced price swings. By episodic, I mean that these price changes are tied specifically to the presence of the pandemic and, once the pandemic is behind us, will eventually unwind, by themselves, without necessarily threatening longer-run price stability. In this sense, then, we might anticipate the prices of rental and used cars, lumber, and other demand-specific items to revert toward their prepandemic levels. Indeed, we have seen the beginnings of such reversions, which some could take as evidence that the use of that word is correct and fully appropriate.”

Now, we have maintained all along that there is indeed a hugely “episodic” (“transitory” even) nature to what we’re seeing, and that indeed prices will abate as bottlenecks loosen. It’s beyond that that we believe deeper evolutionary forces have odds favoring structurally higher inflation in the years to come.

Asian equities leaned green overnight, with 10 of the 16 markets we track closing higher.

Europe’s doing well as well so far this morning, with all but 6 of the 19 bourses we follow trading up, as I type.

U.S. stocks, on the other hand (save for tech) are struggling to start the day: Dow’s down 148 points (0.43%), SP500 is down 0.20%, SP500 Equal Weight is down 0.41%, Nasdaq 100 is up 0.37%, Nasdaq Comp is up 0.29%, Russell 2000 is down 0.10%.

The VIX sits at 20.04, up 0.88%.

Oil futures are down 0.68%, gold’s up 1.51%, silver’s up 1.98%, copper futures are up 2.91% and the ag complex is down 1.45%.

The 10-year treasury is up (yield down) and the dollar is down 0.36%.

Led by AMD, base metals futures, solar stocks, silver and uranium miners — but dragged by ag futures, AT&T, bank stocks, energy stocks and KRBN (carbon credits) — our core portfolio is up 0.23% to start the day.

Like it or not, these days we have to devote a fair amount of our research efforts and capital to the study of geopolitics. I’ve touched on herein, and in client review meetings, the importance of understanding political constraints, as opposed to preferences — as folks tend to get all bound up over what politicians promise or threaten they’re going to do. Well, the things politicians spout would be their preferences, the things they can actually do will be dictated by the constraints reality places on them.

Here’s from Albert Rutherford’s insightful book Learn to Think in Systems: